More on Deductibles

Aaron Carroll twits conservatives this morning for reversing course on the subject of deductibles:

The revelation that many plans in the Patient Protection and Affordable Care Act‘s health insurance exchanges have high deductibles has put many of the law’s conservative opponents into a corner: Once in favor of high deductibles, these critics of ObamaCare are suddenly worried about the risk to consumers…

But as readers of the previous post now know, I actually don’t favor high deductibles. There are far better ways of combining HSAs and third party health insurance. But Carroll brings up a point that I didn’t discuss that deserves mention. He writes:

There’s plenty of good evidence that increased cost-sharing such as that seen in high-deductible health plans can lead to negative consequences for some patients. My own experience as a physician backs that up. I often find that patients have a difficult time getting the care they need…Trying to reduce it with increased cost-sharing might actually do harm.

deductible stack 300Here’s the problem. People are not very good at saving for medical contingencies on their own. As a consequence, they may inappropriately forego needed care because of a cash flow problem. Enter the Health Savings Account. I have always regarded HSAs as a paternalistic idea. If you like, they are a “nudge” idea. The money the employer puts in the account is the employees’ money. After a period of time they can withdraw it for other uses.

Its only role is to insure that when people make choices between health care and other uses of money these choices are based on relative values, not on the constraints of cash flow.

One more point made by Greg Scandlen the other day: It is foolish to choose a low deductible plan if the extra premium you must pay is more than the reduction in the deductible. In that case you would be paying more than a dollar for a dollar’s worth of insurance. That’s wasteful in anyone’s book.

Comments (14)

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  1. Gary says:

    Another good post.

  2. Dewaine says:

    Basically it boils down to:

    People need to have the ability to make choices with their own money.

  3. Jimbino says:

    A person who doesn’t have an HSA to cover healthcare expenses can enter into a contract to pay afterward, much like a student loan.

    This is not so practical for folks nearing 65, but many in their situation can pledge their homes, which is what is already done in the Medicaid situation.

    Insurance is the worst of all possible solutions.

    Indeed, you’d do everybody a favor by publishing graphs of outcomes (wealth, etc) for a young man of 21 facing the choices:

    1. insure a la Obamacare.
    2. forgo insurance, put monthly premiums in an HSA.
    3. go bare, relying on borrowing to pay for exceptionally high medical costs.

    My chart shows that an average 21-year-old male who self-pays all medical costs and puts the Obamacare monthly premium in the S&P instead, emerges at age 65 a millionaire many times over.

    • Hersh says:

      Are you saying that the HSA’s aren’t worthwhile either for young folks? Should they just self-pay for their own medical expenses?

      • John Fembup says:

        “an average 21-year-old”

        Maybe, but an average has no real-world meaning except by the sheerest of coincidence.

        On average Americans have one ovary and one testicle. That’s a true statement, and it tells you exactly nothing useful.

        The point is, people need to have choices because one size (e.g., the average) most definitely does not fit all. Statistically speaking only about 75% of the data points are within one standard deviation from the average. I think this means that government policies based on “the average” must inevitably fail to serve a large share of the population.

        That’s true even for people “nearing 65.” I don’t understand why you think HSA type plans are not so practical for those people. My employer’s medical coverage includes an HSA option, in which I enrolled – the best benefits decision I ever made. In the past three years since I retired, I’ve watched my HSA balance dwindle toward zero. I really wish I still had a choice to contribute into an HSA – but my wonderful government does not allow it. The bastids.

        • Lucy says:

          Great point, John. We must remember that health care is not one-size-fits-all, and this is one area of policy where we should not be “taking averages”.

  4. Trent says:

    “people are not very good at saving for medical contingencies on their own.”

    Humans are smart, people are dumb

    • Ruby says:

      Actually, I’ve noticed that people aren’t very good at saving for anything, not just medical contingencies.

  5. Linda Gorman says:

    Yes people who have to pay forgo care. That’s how they save, and most of the links go to studies that show that people in HDHPs do just that.

    They don’t show whether self-rationing harmed health. This is important. A lot of recommended care isn’t needed depending upon one’s situation. Mammogram every year or every 18 months, for example. Do you need a specialist to read your lab results if you have a chronic disease or can you be taught to look for changes that need specialist attention?

    The RAND Health Insurance Experiment showed that people with high deductibles did reduce use of the emergency room–but it was for relatively minor complaints like headaches. They were slightly more likely to go to the ER for appropriate complaints.

    Carroll speculates that cost sharing might make getting care even harder and then hangs the bit about might doing harm on that without any evidence.

    In my limited experience, cost sharing in the form of paying large chunks of cash saved in an HSA thanks to lower premiums from a high deductible policy actually makes getting care easier–in several cases early appointments have materialized after the front desk knew I was paying cash.

  6. Bob Hertz says:

    Linda and John are both right about the overall good results from HDHP plans.

    When I sold health insurance, though, I kept running across people who were forced into an HDHP and had no HSA account at all.

    This would occur at older ages among persons who received no employer assistance.

    Say that a 60 year old made $45,000 a year and had to buy their own insurance. Even a high deductible plan might cost $6,000 a year due to age rating etc. (The ACA has not improved this at all.)

    When you get done paying $6,000 a year after tax, there just is not much room left to save in an HSA.

    The best HSA plans that I did see were with young highly paid professionals, or people whose employers made down payments into the ASA.

    Of course everything is harder when you have a modest income, and health care is just one of those things.

    If there is any way to make HSA’s work either just before age 65 or after 65 I am sure open to hearing it.

  7. Devon Herrick says:

    To Linda’s point, something that NCPA president, John Goodman, often points out is that we could spend our entire GDP on health care (at least in theory). At some point consumers/patients needs to decide between medical care and other uses for their money. Some of that trade-off would involve deciding against care that’s beneficial, but maybe a poor value. Otherwise, there will be no money left over for housing, food, transportation, meals away from home, clothing, etc.

    Unless we want to all live at the hospital, work at the hospital and spend our last dime on care at the hospital 40 years from now, consumers necessarily will have to decide when the amount of care they receive is sufficient.

  8. Bill Huber says:

    The problem with Aaron’s overly simplistic argument is that he chose to ignore the relationship between insurance premiums, deductibles, and the expected incidence of medical costs. Is the financial burden of not having saved the deductible amount when you have a medical emergency more or less severe than the person who wrecks their car or whose house burns down? Both of these situations that are typically covered by insurance could easily involve higher out of pocket costs than the health insurance deductible. Every person purchasing health insurance has to confront this trade-off in their decision and wishful thinking will not make them disappear or get simpler. If you want to save money for the deductible, then you have to cut costs some place in order to save the money. The good news is that if you are confronted with these three emergencies, it is much easier to negotiate a compassionate discount from a doctor or hospital than your local car dealer or home builder.

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